Ok fellow BP agents/members, I am looking for some insight and advice on how to handle this situation. This could be my chance to really go fulltime into RE all together. I have come in contact with a local developer that has just been approved for a high end development. It will consist of 80 houses and they will start breaking ground this fall/winter and start building next spring. We have had some preliminary discussions on allowing me to list some or have exclusive rights to list all properties. He didn’t seem to have any issue allowing it if we could work out a financial arrangement. I plan to take this gentleman out to dinner soon to discuss the details even more but would like some advice on how to get this locked up in a contract of some type.
Here are some details that may help.
-The average sale price will between $350-650K depending on location, let’s use $500K for an average. ($500K multiplied by 80 is $40 million in real estate over the life of the development).
-I work for a flat rate broker and can discount my commission percentage to whatever I want.
-The development is in a hot and growing area and the price point should be acceptable per the market.
This developer is also a licensed agent but flat old told me he won’t list these as he won’t have time. He knows some agents can be flexible on their commissions and that is what he is looking for. I know this isn’t his first rodeo and there is no way I can get exclusive rights at 4 or even 3% listing commission.
What would you do if you were in my shoes?
You're going to have to pay 3%, or at least 2.5%, to buyer's agents, so no way you could list for less than that. You're going to be expected to spend a Bumch on advertising and marketing, I'd guess $30-$50k, so run the numbers for yourself.
I should have been more clear. I meant I will never get exclusive rights charging 6-7% overall commission. I always give the selling agent 3% (then I take the rest) no matter what. I won't make any friends in my market not giving them their full commission.
I'd negotiate as much of a % as possible. Shoot for say 5% but make 4.5% your bottom dollar. You're going to put in some work into selling these 80 homes. Assuming you're on a 90/10 with your broker, even at 1.5% you stand to make around $500k based on the numbers you gave. I'm not the greatest at math so I hope this makes some sort of sense but here's how I crunched the numbers using a total commission per transaction of 4.5% (and please keep in mind I haven't worked directly with a developer yet so these numbers may be all the way off!)
( $40MM [sales volume] x 1.5% [your commission] = $600k x 90% [your split with broker] = $540k [gross commission] - $40k [marketing & expenses] = $500k [total compensation for 80 list side sales] )
You'd definitely be leaving a boatload of cash on the table going down to 5% or 4.5% and paying the buyer's agent 3% but I'd also look at it from a standpoint of building a great relationship with a developer, getting your own brand out there for future business and building a name for yourself, and generating referrals from the relationships you'll make via this particular venture. If you don't have any other, more lucrative opportunities than this one I say "why not?"
Do you plan to set up shop in an on-site model once it's built? I'm curious what your marketing strategy is going to be should you move forward. Keep us updated!
Jake, will you be solely responsible for the marketing budget? Perhaps there is room for negotiation there as it ties into your commission structure. Maybe you can do some type of escalating commission structure through the course of the development.
@Michael Jobe I was thinking of making 4.5% my rock bottom especially if I am responsible for the entire marketing budget. My current broker takes a $500 flat fee per transaction regardless of the amount but offers zero back office help. Setting up shop in a model is a good idea and one of the questions I will pose to the developer. I also feel that I will be able to get both sides on the sale of some of these houses if the marketing is done well.
I am unsure on the marketing budget. These are all things I will need to discuss with the developer. Is marketing a development any different than selling other homes? The escalating commission is also a good idea. Thanks for your input.
@Jake Thomas how did the story play out?
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